Amazon is a dominant player now, but its birth was plagued with doubt and financial weakness, reveals the book The Everything Store by Brad Stone.
Amazon started as an online book seller, and this was a canny move by Jeff Bezos, the company’s founder. Books were true commodities – all the same, no question of whether it will fit or feel right – one could order them with confidence online. The book business was structured so Amazon could buy books after the customer ordered and paid, so cash flow was good. And books were an excellent illustration of the strength of the unlimited selection that only online sales could offer.
Once the strengths of online commerce were established, Bezos quickly pushed to add other product categories onto the site, as well as pursuing other business strategies. Bezos first focused on CDs and DVDs, which mirrored the advantages of books and shipped in roughly the same sizes.
Amazon’s rush to expand was met with criticism that the company would never become profitable. In response to this Bezos pursued a platform strategy, offering resellers a platform to sell their wares (FBA), trying to encourage big retailers to forgo producing their own e-commerce strategy in favour of collaborating with Amazon, and defraying its investments in server technology by selling Amazon Web Services.
The Principles
Principle 3 – local quality
Amazon’s Prime offering invites customers to pay a fee up front to receive free shipping and other perks. By dividing up their market this way and treating one group differently (local quality), Amazon has found that this group is given an unconscious motivation to buy more from Amazon to “justify” their yearly membership.
Principle 2 – Taking Out
Amazon began as a pure play online retailer. This was both a strength and a limitation. Taking out the cost of physical stores gave it the ability to price its offerings more cheaply.
Principle 5 – Merging & Principle 23 – Feedback
Amazon began letting customers post reviews in 1995, a move that many observers thought was reckless – after all many reviews are negative. But Amazon made money no matter which book you selected, and they could offer just about any book in existence. Merging customer reviews into their website reinforced its value as a go-to place to begin a book selection.
Now as the product line of Amazon expands into almost every niche, user reviews provide a valuable boost to purchasers’ confidence who are buying a product they can’t see in person.
Principle 6 – Universality
Amazon’s early commitment to being a source for all books made it a natural starting point anyone seeking a book.
Amazon has also applied universality by leveraging its strengths as a retailer into other product lines – one can now buy almost anything from Amazon, and leveraging its back-office technologies as extra revenue streams.
Amazon even leverages its investments in warehousing and shipping by hosting competitors’ products on consignment in their Fulfillment By Amazon (FBA) program.
SCAMPER
Substitute
Amazon substitutes an online storefront for the previously typical shelves of a physical store. Making this substitution gave it cost savings and unprecedented selection, but also posed challenges.
Adapt
Amazon was a pioneer in the use of the shopping cart metaphor, which made it easier for people to visualize where the steps from selection to purchasing.
Modify
Amazon is aiming to be the “everything store”, taking selection to an extreme, while constantly investing to make delivery times almost instant.
Put to another use
Amazon partners with other companies extensively, with its FBA program, Amazon Web Services, and Login and Pay with Amazon – a service that lets people use their credit card and delivery address info stored on Amazon to buy product on other websites. This harnesses investments it has already made.
Eliminate
Amazon has implemented a one-click ordering system that relies on stored information about its customers to eliminate many of the tedious steps that would otherwise be needed to place an order.
